House prices worldwide increased by 4.6% in 2017, led by Iceland and Hong Kong, but their rate of growth has slowed while European housing markets are rising up the rankings, the latest global index shows.

Overall some 85% of the 59 countries tracked by the Knight Frank global house price index saw mainstream values rise and seven European countries now sit within the top 10 while Russia, Peru and Ukraine registered the weakest growth in 2017.

‘The latest house price rankings provide a glimpse as to where the world’s housing markets are in relation to their property market cycles, as the era of economic stimulus comes to a close and rate rises occupy the minds of policymakers in several key western markets,’ said Kate Everett-Allen, head of international residential research at Knight Frank.

She explained that while 2017’s growth of 4.6% was lower than 2016’s 5.3%, it was still a reflection of steady growth, tied primarily to the fact the global economy registered growth of 3.7% in 2017.

‘That is not to say there aren’t headwinds. Rising interest rates in the US, UK, and Canada as well as the withdrawal of stimulus is influencing buyer sentiment, and with over 13 countries pegged to the US dollar, further rate rises by the Federal Reserve will have repercussions beyond US shores,’ she pointed out.

Indeed, the index’s more moderate rate of growth is reflected throughout the rankings. The gap between the strongest and weakest performing housing market has narrowed from 27 percentage points to 20.

Iceland and Hong Kong still occupy first and second position but their rates of annual growth have slipped from 20% to 15% and from 18% to 14% respectively since the previous quarter. Mirroring a trend seen in the prime residential markets, European countries are rising up the rankings.

The Czech Republic and Ireland were in equal third with price growth of 12.3%, followed by Turkey at 11.2% and Serbia at 11%, Hungary at 10%, Latvia at 9.5%, Bulgaria at 9% and Malta at 8.8%.

The UK is ranked 24th with annual growth of 5.2%, Portugal at 31 with price growth of 4.5%, France at 35 with 3.9%, Germany at 38 with a rise of 3.6%, Spain at 43 with 3.1% and Italy close to the bottom at 53 with a fall of 0.8%.

At the bottom is Ukraine where prices fell by 5.1%, while in Peru they fell by 4.2%, in Russia they were down 3%, in Saudi Arabia down 2.2%, in Finland down 1.5% and in Poland there was a fall of 0.9%.

In terms of the world’s largest economies, the US with growth of 6.3% has overtaken China at 5.8%. The index report says that in China, although tighter capital controls are limiting cross border flows, policy levers at home are having some success stemming its tide into domestic markets.

The strong performance of the US and Canada at 8.9% means North America outpaced all other world regions in 2017, recording average price growth of 7.5%. ‘With a raft of new measures announced to curb Vancouver’s price Inflation and further rate rises mooted we may see Canada shift down the rankings during 2018,’ said Everett-Allen

For several years, Australia and New Zealand’s markets moved largely in tandem, but the index shows that they have now diverged. Australia sits in 12th place with growth of 8.3% year on year, whilst New Zealand, at 3.2%, has sunk to 42nd place, which Everett-Allen suggest that this is probably influenced by plans to halt the purchase of existing homes by foreign buyers.

‘With 2018 set to see the normalisation of monetary policy, albeit at a gradual rate, it’s likely that the index’s performance may moderate further in the coming months,’ she added.

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